Most businesses across Africa face a challenging landscape with high operating costs, currency volatility and growing competition, says Tarsus Distribution’s general manager, Johannes Groenewald.
Against the backdrop of economic uncertainty, the IT department is often one of the first asked to tighten its belt when the leadership team starts to look for cost-savings.
The result of this is that we and many of our resellers throughout the continent are seeing each day how end-user companies prolong the lifespan of their software and hardware assets as much as they can. Rather than splashing out on the latest gizmos and the latest technology trends, they are limiting their capital expenditure and focusing on keeping existing systems humming along.
In some cases, they may choose to reuse, repurpose or reassign old equipment they would have disposed of in the past as soon as the equipment is depreciated. This practice of delaying new technology purchases as long as possible is known as ‘sweating assets.’ It can be a valuable tactic during difficult economic periods, but it also has some downsides. Let’s look at some of the pros and cons.
Pro #1: It may make financial sense
As most CFOs will know, prolonging the usage of a working asset usually makes good operational and financial sense. Extending the lifespan of the asset enables the company to depreciate it fully and shift it off the balance sheet in a positive and efficient manner, before committing to further capital expenditure. Even if the organisation is, for example, shifting to cloud-hosted servers for its core applications, a hybrid IT infrastructure strategy can enable it to make the move without writing off assets.
Pro #2: It can free funds for more strategic projects
If the organisation is running a line of business system or a voice gateway that still does the job quite nicely, it may make sense to defer refreshing or upgrading the technology to free funds for other business priorities. This can allow the organisation to prioritise projects that will give it a strategic advantage rather than spending on those where an upgrade will have limited impact on competitiveness.
Pro #3: It can minimise business disruption
Sweating existing assets enables the organisation to make an orderly transition to new technology procurement models such as using the cloud for more workloads or adopting managed services and leasing for technology infrastructure. This can provide time and space for end-user training, the reskilling of the IT team and the transition of the operating model with minimal disruption to the business.
Con #1: It may have hidden costs
That creaky old server in the corner or that ancient piece of software could be expensive to maintain, support and renew – especially if it’s so outdated that the vendor is no longer providing patches or that it requires rare, specialised technical skills to manage it. It could also cause expensive business interruptions if it regularly breaks down or falls over, or it may be plagued with a range of security vulnerabilities or integration issues that are not cheap or easy to resolve.
Con #2: It could constrain agility and innovation
Older IT equipment and software might not be able to support the business’s goals in an efficient manner and it could constrain innovation. For example, it could be expensive to provide secure mobile access to a legacy ERP solution for a worker in the field because of the development and integration costs. Or the old technology may limit an organisation’s options in exploiting technologies such as big data analytics, artificial intelligence or digital channels due to inferior performance.
Con #3: It could hamper productivity and cause end-user frustration
Responsive, easy to use IT systems play a key role in employee engagement and productivity. Older systems that are slow and cumbersome to use may mean that people get less done each day than they could or should. Plus, it may lead to poor employee satisfaction, and in turn, lower employee retention rates.
The bottom line
Sweating technology assets to extend their lifespan and maximise return on investment makes business sense in many cases. However, it is important that IT managers take a strategic approach to IT lifecycle management rather than simply pushing existing assets to breaking point or beyond obsolescence as a short-term cost-efficiency tactic.
The reseller can play an invaluable role here by working with the client to understand which legacy assets are costly to maintain, which ones are constraining the business’s competitiveness and which ones are still paying their way. This can help the client to maximise the payback from its IT investments, while keep pace with changing technology and evolving business requirements.
Johannes Groenewald is the general manager of Tarsus Distribution.